Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: On December 31, Year 1, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share.
How will the issuance of the stock dividend affect the financial statements?

Question

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances:  On December 31, Year 1, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share.
How will the issuance of the stock dividend affect the financial statements?

Quizplus · Accepted Answer

The stock dividend is recorded as a decrease to the retained earnings account for $60,500 (=2,750 shares × $22 market price), an increase to the common stock account for $16,500 (= 2,750 shares × $6 par value), and an increase to the paid-in capital in excess of par-Common account for the difference.

Gilligan Corporation Was Established on February 15, Year 1